Is “be more like a startup” good advice for large companies?

Harvard Business Review recently explored the question “Why can’t companies be as innovative as startups?” It is easy to analyze established companies through the lens of a lean, efficient, fast-executing startup and think ‘look how much bureaucracy large companies have. Why can’t they use all of their brainpower to innovate faster than startups can?’ However, the answer has less to do with perspective and much more to deal with other factors.

To be or not to be legal

Startups can innovate because they can do anything their founders can imagine, whereas a larger company can only do what’s legal. Startups aren’t publicly traded and don’t have the pressure of that specific type of regulatory oversight. So, they can can try any business model, even one that on the surface is illegal. Disruptive companies like Uber, Airbnb, and Tesla all created value by giving consumers a competitively better option to the typical taxi, hotel, and car buying customer experience. They did this by directly opposing current regulations.

Startup with nothing to lose

The legal and gray area commentary is a fair point, but it misses the larger point – that startups have nothing to lose. That’s why they can easily try out business models without being sure if they’ll be able to win the legal battle or not. They can make more risky decisions without oversight. 90% of them will fail, and the rewards for succeeding far outweigh the penalties for failure. Failure, for a startup, is an opportunity to go back in house with a lot of learning experience or start over with a different business model or industry vowing to not repeat the mistakes that sunk your last company. It’s also why startups can try any marketing strategy they want – they don’t yet have a lot of brand equity to lose, and their nonconforming approach might even strike a chord with their intended audience. They can even hire and fire more easily because they don’t have big internal structures, so they don’t have to worry as much about internal equity or HR issues.

And that’s the real reason you can’t just tell a big company to act like a startup. A big company has more to lose, and everything in business is a risk reward calculation. What you can do as a big company is make a conscious effort in your business and your culture to make sure you are always devoting resources to future R&D. That’s the advantage that a big company has – they have resources they can allocate internally to multiple new directions or products so that they can stay relevant in three or 5 years. A startup, on the other hand, is always all in on what they’re doing right now. And for this reason, sometimes, it doesn’t pay to act like a startup.